Income-tax- Interest earned from EPFO payouts

Post my retirement from private service, at my current age of 62 years, I am set to receive from my EPFO account a payout of over ₹60 lakh. My wife has been a homemaker all her life. We wish to invest the monies in FDs. The idea is to maximise the Fixed Deposit in India Post Bank in each our names to the tune of ₹30 lakhtogether. (If the ceiling is ₹15 lakhI for one individual?). 

Likewise, with the remaining approximately ₹30 lakh, I wish to get FDs (Banks & Corporate Deposits) in our names at 50 per cent each. We plan to receive all the interests for instruments in our names, into our respective savings accounts. I am aware these interest earnings are subject to IT rules. Am I allowed to deposit the receipts from EPFO in two parts as proposed above in our respective bank accounts? Are the PF monies in my wife’s hands (again?) subject to Income-Tax?

We understand that an individual is receiving payout from Provident Fund (PF) and that this withdrawal is meeting the requisite conditions under PF laws and per the Income-tax Act, 1961 (‘the Act’). Hence, we assume that payout received would not be subject to income tax. We also assume that the amount to be transferred by an individual to his spouse is in the form of a gift and that the individual and his spouse are senior citizens.

Amounts received from PF scheme may be invested by an individual. In case the individual transfers part of such amount to the spouse, it shall not be, again, subject to tax in spouse’s hands as we assume this would be in the form of gift.

We understand that the individual, along with the spouse, wishes to invest such amount equally in fixed deposits (with banks/corporate deposits) and fixed deposits with India Post Office. The maximum limit eligible for an individual to invest in Post Office senior citizen scheme is ₹15 lakh. Therefore, the individual and spouse can invest ₹15 lakh respectively in India Post Office senior citizen schemes. Balance amount above ₹30 lakh can be invested in fixed deposits (with banks/corporate deposits). The funds can be invested into multiple sources as per individual’s choice.

Any income received from such investments (post office deposits/bank deposits/corporate deposits) may be subject to tax in the hands of the investor after claiming necessary exemptions/deductions as per the income-tax provisions. However, please note clubbing provisions under section 64(1)(iv) of the Act may apply, i.e. income from assets that an individual taxpayer transfers directly or indirectly to the spouse without adequate consideration is clubbed in the hands of the transferor. Hence, the income generated in the hands of the spouse of the individual qua the monies transferred may be taxed in the hands of the individual. The income, if any, from investments made from the interest so earned on the original investment by the spouse will not be subject to the clubbing provisions.

The writer is a Partner with BDO India LLP

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